How Much Do You Know About the History of Credit Cards?

The first credit monitoring specialists were employed by retailers in the early 20th century, but independent agencies began to crop up soon after. In 1970, Congress passed the landmark Fair Credit Reporting Act to codify credit reporting regulations and ensure score transparency. The big credit reporting firms contracted with a tech company called Fair, Isaac and Company (now Fair Isaac Corporation), or FICO, to develop a universal scoring algorithm.

In 1958, Bank of America launched the Bank Americard, but things didn’t go as smoothly as the bank hoped they would. Fraud was rampant, more than 20% of accounts were reportedly delinquent, and there were problems with fees and branding. Finally, BoA spun off Bank Americard into its own corporation, which merged with several global providers to form Visa.

Charg-It was a credit system created by John C. Biggins of Flatbush Bank in Brooklyn. The bank-issued card allowed users to pay for purchases at merchants within a two-block radius of the bank. The distance was limited by the reconciliation system, which required merchants to provide payment slips to the bank. Nevertheless, Charg-It was an important predecessor to modern credit cards.

Discover launched across the U.S. in 1985 as a credit card subsidiary of Sears, with the signature orange branding the company still uses. In 1993, Sears spun off the Discover brand into its own publicly traded entity, which merged with Morgan Stanley in 1997. Over the years, Discover moved into other financial services, including loans and banking. In 2007, Discover became its own independent public entity.

Prior to the advent of the magnetic stripe, numbers and names on credit cards had to be imprinted onto pressure-sensitive carbon paper. That all changed in the early 1960s, when IBM engineer Forrest Parry was trying to combine a plastic identity card with a strip of magnetic tape. When his wife Dorothea Tillia suggested ironing the strip onto the card, the earliest version of a magnetic stripe credit card was born.

The earliest charge cards were metal plates issued by department stores beginning in the 1920s, but they were only accepted by the merchant who issued them. The small cardboard squares issued to Diners Club members were accepted in restaurants all over New York City. Plastic wouldn’t be used in credit cards until 1958, when major banks entered the market and competition increased significantly.

In 1950, businessman Frank McNamara was dining with a client in New York City when he realized he had forgotten his wallet. From his embarrassment grew one of the world’s most important financial tools: McNamara devised a card that diners could keep with them to make payments at restaurants. By 1953, Diners Club was accepted throughout the U.S., and in Mexico, Canada, and the United Kingdom.

American Airlines’ Air Travel Card was offered to customers as a convenient way to buy flights now and pay for them later. American signed agreements to license the system out to other airlines. By 1941, the Air Travel Card was responsible for about 50% of all revenue earned by the 17 participating North American airlines. It eventually evolved into its own travel payment network called the Universal Air Travel Plan (UATP).

The idea of credit has been around for almost as long as people have been making transactions, but the concept of a single card, issued by a bank, that could be used to pay for purchases anywhere, developed in the 20th century. One of the first versions was Metal Money, a plate issued to select Western Union customers, which allowed them to make transfers immediately and defer payment to a later date.

After Diners Club proved the credit card business could be a success, major financial conglomerates such as Bank of America and American Express entered the fold. Much of the battle for market share in the credit card industry unfolded via advertisements in print, television, and radio, leading to several famous jingles and catchphrases, including Visa’s “Don’t leave home without it” and “It’s everywhere you want to be,” and Mastercard’s “Priceless.”